9/01/2009 @ 3:30PM

Skype Sale Calls Out PayPal

By selling off 65% of Skype Tuesday,
eBay
management took another step toward refocusing the company’s attention on its marketplace business.

But how far is Chief Executive
John
Donahoe
John Donahoe
willing to go to get
eBay
back to basics? Could spinning off PayPal be the company’s next big move?

A recent report from J.P. Morgan analyst Imran Khan highlights two good reasons for one, though he doesnt explicitly call for a spin-off. First, PayPal is perhaps an even rarer gem than Skype. PayPal is quickly establishing itself as major payment processor in the same league with Visa and
MasterCard
. The company has a much lower payment volume than its mostly offline peers–roughly 1% of Visa and MasterCard combined–but focuses on the increasingly important e-commerce sector. And like Visa and MasterCard, PayPal has become a global brand.

A public offering could give PayPal the boost it needs to expand its footprint. In 2008, PayPal facilitated roughly $60 billion in total transactions. PayPal’s business model involves collecting around 4% of the revenue from each of those payments; it also earns interest from some non-U.S. customer balances and from its BillMeLater service.

The second reason for a possible PayPal spin-off is that business outside eBay’s ecosystem will be crucial to its growth over the next couple of years. Since eBay acquired PayPal in 2002, the payment platform has mostly picked the low-hanging fruit of eBay auctions. With most of the ground already covered at eBay, PayPal is ready to move on to other fertile digital grounds. Khan estimated that worldwide e-commerce and online travel will grow 33% to $1 trillion in 2011; PayPal accounted for roughly 4.2% of that number last year and would likely capture more if it were no longer part of eBay.

And if eBay’s marketplaces business turns for the worse, PayPal would likely suffer declines as well.

To be sure, PayPal has been a major boon to eBay’s bottom line, and moving those numbers off its balance sheet could be a scary proposition for investors. But Skype was that way too, and still, everyone agreed that both companies would be better off going their separate ways.